Hiscox Online Art Trade Report 2018

Hiscox Online Art Trade Report 2018

Foreword

The online art market remains enigmatic. Growth is slowing and the long anticipated consolidation of an over-crowded market remains elusive, even though a sizeable 81% of platforms expect more. Lack of transparency, especially concerning pricing, seems to be the main stumbling block holding the online art market back and it’s hard to see that being resolved anytime soon. In a market where everyone haggles on price, it must seem like too high a mountain to climb to publish your best price first, as we see and expect in so many other areas of online shopping.

The last year has really seen blockchain mania take off, with many claiming it can cure all the market’s ills. In this report, we look at the current impact blockchain and cryptocurrencies such as bitcoin are having on the online art market, as well as exploring their future potential.

Also new this year is our examination of cyber risk. The art market is dominated by small and medium sized businesses who have historically been at the less tech savvy, more complacent end of the scale. These businesses are vulnerable and our findings suggest that cyber criminals may be waking up to this, perhaps seeing the art market as a soft target.

Buying art continues to be hugely enjoyable and exciting (as well as occasionally frustrating) and the continued influence of social media, especially Instagram, helps fuel the growth of the market.

The future of the online art market is guaranteed, although the shape remains a mystery. In the meantime, we will continue to monitor developments and I hope that you find our report useful.

Online art market sales reached an estimated $4.22 billion in 2017, up 12% from the year before. This was lower than the 15% year-on-year growth rate in 2016, and 24% growth rate experienced in 2015.

The percentage of buyers who bought art and collectibles online in 2017 has fallen from 2016, which could suggest that the online art market is struggling to convert hesitant, as well as occasional online buyers into repeat customers.

There are signs that active online buyers are buying more frequently and at higher prices. In 2018, the share of online art buyers paying an average price in excess of $5,000 per fine art object increased to 25%, up from 21% in 2017.

Almost three quarters (74%) of online art buyers bought more than one art object online in the last 12 months, and are expanding the range and type of artworks and collectibles that they buy.

Although existing collectors are used to secrecy and a lack of transparency when it comes to pricing, this is an aspect which clearly doesn’t sit well with new buyers. In this year’s survey, 90% of new buyers said that price transparency was a key attribute and criteria when buying art online.

With 41% of buyers expressing no preference for a specific channel of purchase, there will be an increasing demand for consistent quality across both online and offline channels.

The use of mobiles to buy art has increased significantly in recent years, rising to 20% in 2018 (up from 4% in 2015). The rise in mobile usage is in line with the near doubling of mobile web traffic from 2014 to 2018.

Instagram has become the art world’s favourite social media platform, with 63% of survey respondents citing it as their platform of choice (up from 57% in 2017 and 48% in 2016). With close to 1 billion users, it is becoming an essential tool for the art industry in reaching consumers beyond the existing art market.

With a number of new mergers and acquisitions taking place in the last 12 months, 81% of online platforms questioned, expect to see a higher rate of consolidation in the future (up from 71% in 2017) and most (57%) expect this will be in the form of ‘vertical mergers’ (companies operating in different parts of the value chain).

Half of all online platforms said that the online auctions market was going to be the area facing the most intense competition this year. With Artsy making significant investment in the online auction business, competition with other auction aggregators such as Invaluable, LiveAuctioneers and thesaleroom.com is increasing.

In the last 12 months, Artsy, Etsy and Sotheby’s have acquired companies and teams focusing on machine learning and artificial intelligence. Could this be the latest weapon in the battle for new online buyers?

Although 41% believe that the online art market will consolidate into only a few global platforms, another 30% believe regional and local platforms will dominate, whilst 32% believe the online art market will remain collecting category specific. The divergence in views highlights that the end-game is still open and that there is plenty to play for.

Three quarters of galleries used third-party marketplaces to sell art online in 2018 (up from 59% in 2017 and 41% in 2016). One in five (19%) are now using these marketplaces as an outlet for at least half of their online sales (up from 3% in 2017).

Once again, galleries report that their online buyers are mostly new clients - 73% said so this year. But loyalty remains an issue with 43% admitting repeat online buyers were rare.

Almost three quarters (70%) of galleries this year sold their artworks online to international clients - up from 54% in 2017.

While the majority (60%) of online platforms feel that cryptocurrencies as a payment method will be the way blockchain technology initially enters the online art market, only 7% currently accept cryptocurrencies as payment and only 8% have embedded blockchain technology into their businesses.

Four in ten (41%) online art buyers are ‘concerned’ or ‘very concerned’ about cybercrime when buying art online, and 82% said they would most likely buy from platforms they had prior knowledge of due to fear of cybercrime.

A worrying 54% of platforms have been the target of an attempted cyberattack in the past 12 months and around 15% said the attack had been successful.

Despite its widespread applicability, 41% of galleries and 24% of online platforms surveyed were not aware of the new General Data Protection Regulation (GDPR) and concerning numbers were unprepared for it. Coming into force on 25th May 2018, GDPR will seek to unify data standards and provide greater data protection for EU citizens.

Online art sales trends

Online art market sales up despite slowing global art market

Online art market sales reached an estimated $3.75 billion in 2016, up 15% from 2015. This gives the online art market an 8.4% share of the overall art market, up from 7.4% in 2015.

Bricks-and-clicks are gaining ground

Whilst the traditional auction houses were slow in adapting to the opportunities of the online art market, 2016 marked a significant shift in their online sales strategy, with Sotheby’s, Christie’s and Heritage Auctions generating combined online sales of $720 million in 2016 – accounting for 19% of the online art market. Online-only auctions saw a particularly strong increase at Christie’s, with an 84% jump in sales. One of the biggest online players, Heritage Auctions, reported that 41% of its auction sales are now conducted online, with $348.5 million in online sales reported in 2016 (up 1.3% from 2015).

Hesitant art buyers remain unconvinced about buying art online

The conversion of online art buyers remains static for the third consecutive year, signalling that the online art market could be struggling to convert sufficient numbers of hesitant art buyers. However, the good news is that existing online art buyers have been acquiring even more art in the last 12 months. The number of online art buyers that have bought more than a single artwork in the last 12 months has increased to 65% in 2017, up from 63% in 2016.

Obstacles to future growth

Online art sales growth can only accelerate by increasing the conversion rate of hesitant, non-online buyers by actively addressing their key concerns. These concerns are currently focused around the lack of physical inspection and worries about the work’s condition, authenticity, and the seller’s reputation.

Third-party sales channels are gaining in popularity

In 2013, 15% of galleries surveyed said they would generate online sales by partnering with an existing art e-commerce platform. In 2016, 26% of galleries surveyed said they planned to partner up with a third-party e-commerce platform in the near future, and this year 27% said this was their future e-commerce strategy. In 2017, 49% of galleries that sell art online say they are doing so through third-party online platforms.

Online art sales are dominated by pieces priced below $5,000

Despite individual examples and anecdotal evidence that works are increasingly being bought online at higher price points, the future battleground for the online art market is likely to remain in the lower price range. According to the latest survey, 79% of online art buyers spend less than $5,000 per piece when buying art online, up from 78% in 2016 and 67% in 2015.

Online art platform trends

Bricks-and-clicks account for four of the top ten companies listed in The Hiscox Online Art Sales Platform Ranking

Christie’s came out on top ahead of Sotheby’s, Artsy, 1stdibs and Artnet. Four of the top 10 ranking online art platforms were traditional art businesses, which now have an online/digital platform for bidding on, and buying, art. This suggests that the offline art world is catching up with its online-only rivals.

The balance of power could be shifting back to the traditional art market

The recent failure of the high-profile online auction house Auctionata (announced in January 2017), questions the ability of new online-only players to grow fast enough and become profitable in an increasingly congested market place. On the other hand, the growth in online-only auction sales from traditional auction houses, such as Christie’s, shows sales growth of 84% in 2016, which suggests that the power balance might be shifting back to the incumbent art market players.

Business models are converging towards a one-stop shop

Increasing competition is already forcing online art platforms to embrace new strategies to expand their business and diversify their income streams. Among the auction aggregators, Invaluable has ventured into the gallery and dealer space by allowing visitors to buy directly from galleries through fixed-price offers. Artsy, a platform predominantly targeting galleries, has held several online auctions in partnership with Phillips and Heritage during the last 12 months. These trends suggest we could see more consolidation in the industry over the coming years.

Online auctions will become a key battlefield in 2017

It is evident from the survey that most online art platforms see the auction space as the key battlefield in the next 12 months, as virtually every online art platform starts to offer an online auction service.

The majority of online art platforms expect to see more industry consolidation

Among the online art platforms surveyed, 71% said they expected more consolidation to happen. 48% of companies surveyed felt that ‘horizontal mergers’ (companies operating in the same space such as Paddle8 and Auctionata) will be the most common, while 53% believe ‘vertical mergers’ are more likely, i.e. companies operating in different parts of the value chain.

Addressing the concerns of the hesitant art buyer

Buying art and collectibles online sight-unseen presents several challenges for the buyer. Many worry that the artwork will look different than it appeared in the digital image, or that the condition of the work might be different from what was stated or anticipated. This hurdle has remained the biggest challenge among hesitant art buyers in the last three years, cited by 80% and 77% respectively.

More information needed

79% of survey respondents said they wanted more background information about the artist and the object, up from 76% in 2016.

Buyer education is key

52% of online art buyers state that content is important to their platform choice (up from 42% in 2016). This suggests that buyers are looking for more than just buying artwork. In fact, they are attributing significant value to the educational experience.

Price transparency will become the norm rather than the exception

Although the art market is still notoriously opaque when it comes to revealing prices, 88% of online art buyers find price transparency (that is, the clear labelling of prices and the possibility to check past and comparable prices) an essential ingredient when buying art online. 67% of hesitant art buyers said they would like access to an independent valuation report (up from 51% in 2015, and down from 68% in 2016).

Human interaction is still very important

73% said they would like to have the opportunity to talk to an expert before making a decision to buy art online (up from 69% in 2016).

Customer reviews and feedback

65% of hesitant art buyers surveyed said that customer reviews and feedback from previous clients would be an important ingredient in the art buying process (up from 64% in 2016). Although customer reviews are not common in the art world, the growing use of social media suggests that client feedback (such as likes and followers) as well as comments and reviews could play an increasingly important role in driving the emotional consideration for proceeding with the online art buying process.

Return guarantees

The large majority (80%) of hesitant online art buyers said that the terms of the return guarantee were important in their decision to buy art online sight-unseen. In fact, 71% said that having the option to insure the artwork at time of purchase would make them feel more confident buying online and 64% said that more information and choice about the shipping options would help in the acquisition process.

Social media

Instagram overtakes Facebook as the preferred social media channel for the art world

Instagram has emerged as the most important social media channel in the art world, with 57% of art buyers surveyed saying this is the most frequent social media platform used (up from 48% in 2016 and 34% in 2015). In contrast, 49% said that Facebook was their preferred social media platform, down from 54% in 2016.

Social media is becoming an increasingly important tool for galleries and dealers

91% of the galleries surveyed said they actively use social media to promote their gallery and their art/artists. Whilst Facebook and Twitter were the two dominant channels in 2016, Instagram is now clearly the social media channel of choice, with 57% of galleries saying they are finding Instagram the most effective in terms of raising awareness, compared to 42% who say Facebook.

Auction houses embrace social media

Sotheby’s has seen its Instagram following grow by 102% between March 2016 and March 2017, and currently has more than 430,000 followers. Christie’s has in excess of 267,000 followers (up 78% from March 2016) and Phillips has over 98,000 followers (up 83% over the same period). The use of Instagram among auction house experts is proving to be an effective communications tool, and potentially influences decisions among new and existing buyers.

Key moments in the last 12 months

Key:

Partnerships

Launch of online venture

Fundraising/investment

Online sales

Acquisitions

CryptoArt/blockchain

Scroll

Drag

April 2017

Crypto Art Gallery launched an event for Blockchain and cryptocurrency based artworks

April 2017

Artstaq launched its full trading website for its online art stock exchange platform

April 2017

Maecenas launched a crodfunding campaign on Seedrs to raise $400,000

April 2017

Artsy acquired ArtAdvisor a New York-based art technology startup

May 2017

Christie's starts publishing results for their online-only auctions

July 2017

Artsy raised $50 million in venture capital for its Series D funding

July 2017

Dadiani Gallery announces it will be the first British gallery to accept cryptocurrencies as a payment menthod

August 2017

Sotheby's eliminates Buyer's Premium for online only auctions

October 2017

Bit2Art.com launched an digital platform to trade fine art in Bitcoin

November 2017

ePaiLive and China's State Administration for Cultural Heritage launched the "Global Art Index" which is the first official art index in China

January 2018

Drouot Digital launched its new website which merges Live and Online sales

January 2018

Christie's Christie's announced its online sales had risen 12% in 2017 to £55.9 million ($72.4 million)

January 2018

The first Rare Digital Art Festival was held in New York, focussing on ceative technology, digital art and blockchain and crpytocurrencies in art

January 2018

Codex a blockchain based decentralized title registry for Art & Collectibles launched

January 2018

Heritage online sales surpass $815 million in 2017

January 2018

Paddle8 received investment from Swiss technology company The Native, which will help to expand its blockchain and cryptocurrency capabilities

January 2018

Sotheby's acquires Thread Genius, a start up company which presents users with their personal taste using image recognition technology

February 2018

Sotheby's acquires Viyet, an online marketplace for interior design

February 2018

Pantera Capital, a hedge fund specialising in blockchain, announced it was investing $5 million in Codex

February 2018

Leonardo DiCaprio invests in the Magnus App which allows users to scan artworks to find out further information and pricing

February 2018

Forever Rose, was produced by artist Kevin Abosch and GIFTO, virtual gifting platform on blockchain. The virtual work was sold for $1 million to a group of 10 collectors (including leaders and investors in the crypto world, such as ORCA Fund, Future Money and Ink and TLDR Capital.) The sale proceeds were given to charity.

February 2018

Auction Technology Group (ATG) announced today that it has merged with the German art & antiques portal Lot-tissimo.com

Dan Colen. The Space Between her Belly Button and her Breast, 2010, paper, mylar confetti, and beva on canvas. Courtesy of Paddle8

Online art market insights

The Hiscox art market hub explores topics and themes that arise from the latest report and includes useful interviews, articles and analysis.